Loss Trends and Emerging Risks: Management Liability

Company leaders are increasingly held to high standards of accountability, and their actions – or lack thereof – can be challenged through lawsuits. As part of our annual Q&A series, Eduard Lecker, Senior Underwriter, Management Liability shares his thoughts on key loss trends and exposures in this area in 2023 and what organizations need to watch out for in 2024.

What were the loss trends/key exposures you saw in 2023?

A lot of claims are more focused on environmental, social and governance (ESG). That can take a few different forms. Historically, ESG claims were focused on pay equity, social impact and consumer rights. Today, claims are increasingly related to organizations’ climate change strategies. Companies are more vocal about what they’re doing to help the planet, and people are holding them accountable if they’re not doing what they’re saying – in other words, ‘greenwashing.’

Bankruptcies and insolvencies are on the rise, which in turn is bringing greater claims activity. The economic downturn hit some companies hard, which led to an increased number of bankruptcy and insolvency filings in Canada and the U.S. The rising interest rates have also made it a challenge for companies to obtain new credit and pay back existing loans (in cases of lines of credit and variable rate loans).

There’s also increased mergers and acquisitions activity, which brings its own potential for D&O (Directors and Officers) claims related to disputes with shareholders and employees. For example, after a merger or an acquisition is complete, there is a greater chance of employee terminations. This could be due to layoffs as some roles may now be redundant, or employees voluntarily leaving due to the new corporate culture. This increases the chances for employment practices liability (EPL) claims, especially for wrongful and constructive dismissal.

What are some emerging risks to keep an eye out for 2024?

The cost of litigation and costs of lawyers are always going up, so that’s something to look out for. Even frivolous allegations can lead to a lengthy claim process. Fees for lawyers and other professionals still need to be paid, regardless of the validity of the allegations brought forward.

With the economic downturn, we can likely foresee a lot more layoffs. That could mean more EPL-related claims, more insolvencies and more companies entering bankruptcy protection, which is going to upset some shareholders and investors. There’s also going to be a lot more coming up with ESG – not just related to the environment and greenwashing, but also pay equity, discrimination and social equality.

How can organizations mitigate these risks?

To start with ESG, it’s important to have sound policies in place. A good rule to follow is ‘under-promise and over-perform.’ Don’t try to make your company appear better than it is – be realistic about what you can achieve. You can be vocal about what you’ve accomplished after the fact.

On the employment side, make sure there are policies and procedures in place for everything. Have these policies and procedures reviewed by an HR professional and legal counsel who are experts in employment law – and do this annually because things change. For example, five years ago, LGBTQ+ rights were maybe not on an organization’s mind, but now policies around that are commonplace.

Educate your employees – have them read and sign the policies every year and keep records of all communications. In litigation, it’s not about what happened; it’s what you can show you’ve done and what you can prove.